17-07-17 Foxconn Impleading Apple in Qualcomm Case

Case 3:17-cv-01010-GPC-MDD Document 66 Filed 07/17/17 PageID.
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1 THEODORE J. BOUTROUS, JR. (SBN 132099)

tboutrous@gibsondunn.com
2 DANIEL G. SWANSON (SBN 116556)
3 dswanson@gibsondunn.com
NICOLA T. HANNA (SBN 130694)
4 nhanna@gibsondunn.com
JASON C. LO (SBN 219030)
5 jlo@gibsondunn.com
JENNIFER J. RHO (SBN 254312)
6 jrho@gibsondunn.com
7 MELISSA PHAN (SBN 266880)
mphan@gibsondunn.com
8 GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
9 Los Angeles, CA 90071
10 Tel: (213) 229-7000
Fax: (213) 229-7520
11
CYNTHIA RICHMAN (DC Bar No. 492089)
12 crichman@gibsondunn.com
GIBSON, DUNN & CRUTCHER LLP
13 1050 Connecticut Avenue, N.W.
14 Washington, DC 20036
Tel: (202) 955-8500
15 Fax: (202) 467-0539
16 Attorneys for Defendants and Third-Party Plaintiffs
FIH MOBILE LTD. and HON HAI PRECISION INDUSTRY CO., LTD.
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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22 QUALCOMM INCORPORATED, Case No. 3:17-CV-01010-GPC-MDD
23 Plaintiff, THIRD-PARTY COMPLAINT OF
DEFENDANTS FIH MOBILE LTD.
24 v. AND HON HAI PRECISION
INDUSTRY CO., LTD. FOR
25 COMPAL ELECTRONICS, INC., CONTRACTUAL INDEMNITY
FIH MOBILE LTD., JURY TRIAL DEMANDED
26 HON HAI PRECISION INDUSTRY CO.,
27 LTD.,
PEGATRON CORPORATION, and
28 WISTRON CORPORATION,,
Gibson, Dunn &

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THIRD-PARTY COMPLAINT OF DEFENDANTS FIH MOBILE LTD. AND HON HAI PRECISION INDUSTRY CO., LTD.
CASE NO. 3:17-CV-01010-GPC-MDD
Case 3:17-cv-01010-GPC-MDD Document 66 Filed 07/17/17 PageID.1244 Page 2 of 10
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Defendants.
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FIH MOBILE LTD. and
3 HON HAI PRECISION INDUSTRY CO.,
4 LTD.
5 Third-Party Plaintiffs
6 v.
7 APPLE INC.,
8 Third-Party Defendant
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1 Defendants and Third-Party Plaintiffs FIH Mobile Ltd. and Hon Hai Precision
2 Industry Co., Ltd. (collectively, Foxconn) bring this action against Third-Party
3 Defendant Apple Inc. (Apple) as follows.
4 The license agreements and royalty payments that Qualcomm Incorporated
5 (Qualcomm) seeks to enforce in this action are at the heart of challenges to
6 Qualcomms licensing practices in numerous cases and regulatory proceedings. A
7 lawsuit by the Federal Trade Commission (FTC) and consumer class actions in cases
8 consolidated before Judge Koh in the Northern District of California have challenged
9 Qualcomms licensing practices and royalties in these and other agreements on
10 antitrust grounds. Apples primary competitor, Samsung, has come forward in the
11 FTC case, explaining how Qualcomms excessive royalties and licensing practices
12 have caused anticompetitive harm. Intel, Qualcomms competitor, has done the same.
13 Law enforcement authorities around the globe have also challenged Qualcomms
14 licensing practices and royalties. The Korea Fair Trade Commission, for example, has
15 imposed an $850 million fine, the largest fine it has ever imposed, concluding that
16 these agreements are anticompetitive, the royalties charged are excessive, and licensees
17 should be given the opportunity to renegotiate their licenses.
18 In January, Apple filed an action in this Court in a related case, Case No. 3:17-
19 cv-108-GPC-MDD, challenging Qualcomms licensing practices and royalties under
20 these same license agreements as a violation of the antitrust laws, U.S. patent law,
21 public policy, and Qualcomms obligation to license on fair, reasonable and
22 nondiscriminatory (FRAND) terms. In filing this case, Qualcomm correctly related the
23 Apple case to this case.
24 Foxconn, a defendant in the present action, Case No. 3:17-cv-1010-GPC-MDD,
25 is a contract manufacturer that assembles products, including Apple products under
26 contracts with Apple that include in many cases baseband processor chips
27 manufactured by Qualcomm. Foxconn is a party with Qualcomm to supply contracts
28 for those chips and license agreements that double dip by requiring further payments
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1 as royalties. Historically, Apple has provided Foxconn funds with which to pay the
2 amounts owed to Qualcomm with respect to Apple devices plus the double-dipping
3 royalties on top of the purchase price; Foxconn provides its royalty payments to
4 Qualcomm. Foxconn has been informed that Qualcomm would rebate a portion of the
5 royalties back to Apple. Beginning in 2016, to thwart investigations of Qualcomms
6 anticompetitive activities by law enforcement authorities, Qualcomm withheld rebates
7 owed back to Apple because Apple had cooperated with competition agencies
8 investigating Qualcomm, according to Foxconns understanding. In response, Apple
9 withheld royalty payment funds from Foxconn.
10 In response to Qualcomms Complaint, Foxconn will join the challenges to
11 Qualcomms illegal business model in their responsive pleadings. As explained there,
12 Qualcomm is using Foxconn to attempt to recover funds Apple withheld from
13 Qualcomm. Apple has forthrightly acknowledged this reality and indemnified
14 Foxconn for Qualcomms claims. Qualcomms Complaint admits to the existence of
15 Apples indemnification yet nonetheless puts Foxconn in the middle of this dispute
16 between Qualcomm and Apple. Foxconn accordingly is impleading Apple as an
17 additional defendant in this action based on Apples indemnification of it.
18 Jurisdiction and Venue
19 1. This Court has subject matter jurisdiction over the underlying action
20 pursuant to 28 U.S.C. 1332(a)(2). This Court has subject matter jurisdiction over
21 this action pursuant to 28 U.S.C. 1332(a)(2). There is diversity of citizenship
22 between Foxconn and Apple, and based on the allegations in the underlying complaint,
23 the amount in controversy between Foxconn and Apple exceeds $75,000.
24 2. This Court also has supplemental jurisdiction of the claims herein under
25 28 U.S.C. 1367 because the claims herein are so related to the claims in the
26 underlying action within this Courts original jurisdiction that they form part of the
27 same case or controversy under Article III of the United States Constitution.
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1 3. Venue is proper in this District to the extent venue is proper for the
2 original claims against Foxconn. Venue also is proper in this District pursuant to 28
3 U.S.C. 1391(b).
4 The Parties
5 4. Hon Hai Precision Industry Co., Ltd. (Hon Hai) is a corporation
6 organized and existing under the laws of Taiwan, with its principal place of business at
7 No. 66, Zhongshan Road, Tucheng Industrial Zone, Tucheng Dist., New Taipei City,
8 Taiwan, R.O.C. Hon Hai is an original design manufacturer providing a variety of
9 support services related to design, manufacturing, and after-sales service for
10 information and communication technology products. Hon Hai is the parent
11 corporation of Foxconn (Far East) Limited, which owns 10 percent or more of FIHs
12 stock.
13 5. FIH Mobile Ltd. (FIH) is a corporation organized and existing under the
14 laws of Taiwan, with its principal place of business at 18 Youyi Road, Langfang
15 Economic and Technological Development Zone, Hebei Province, Peoples Republic
16 of China. FIH is an original design manufacturer providing a variety of support
17 services related to design, manufacturing, and after-sales service for information and
18 communication technology products.
19 6. Apple is a California corporation having its principal place of business at
20 1 Infinite Loop, Cupertino, California 95014. Apple designs, manufactures, and
21 markets mobile communication and media devices, personal computers, and portable
22 music players, as well as related software, accessories, and content.
23 Statement of Facts
24 7. Hon Hai contracted with Apple to provide certain services and products to
25 Apple pursuant to a Master Goods Agreement (the MGA), effective as of December
26 16, 2005, and amended at various times including January 1, 2011, and June 1, 2015,
27 and a Master Development and Supply Agreement (the MDSA).
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1 8. Since that time, Hon Hai has provided various services and products to
2 Apple pursuant to the MGA and the MDSA.
3 9. Qualcomm Incorporated (Qualcomm) filed a complaint against
4 Foxconn and several other defendants in this Court on May 17, 2017.
5 10. Qualcomm alleges in its complaint that Hon Hai and FIH have breached a
6 certain License Agreement between them and Qualcomm by failing to pay Qualcomm
7 certain royalties, failing to cooperate with Qualcomms royalty audits, and misstating
8 certain sales information for the products it manufactures and sells to Apple.
9 Qualcomm further alleges that as a result of these supposed actions, Foxconn also has
10 breached a certain Master Software Agreement between Foxconn and Qualcomm by
11 continuing to use Qualcomms copyrighted software.
12 11. Qualcomm alleges that these breaches arise in connection with products
13 and services that Foxconn provides to Apple, that Apple orchestrated the actions of
14 [Foxconn] and that Apple has agreed to indemnify [Foxconn] for any damages [it]
15 may incur. For example, Qualcomm alleges that Apple is withholding substantial
16 payments from [Foxconn] and directing [Foxconn] not to make corresponding royalty
17 payments to Qualcomm. Compl. 76. As a result, Qualcomm asserts that Foxconn
18 underpaid royalties due for Apple products for the fourth quarter of 2016 and failed to
19 pay any royalties for Apple products in the first quarter of 2017. Compl. 81, 102.
20 12. Qualcomm alleges that through its actions, Apple has interfered with
21 [Foxconns] long-standing payment obligations to Qualcomm. Compl. 2.
22 13. Based on these same allegations, Qualcomm also seeks declaratory relief
23 that Foxconn has breached its obligations under the License Agreement and the Master
24 Software Agreement.
25 14. For these alleged breaches, Qualcomm seeks injunctive relief and specific
26 performance (including in the form of making full and complete payments of
27 royalties, providing Qualcomms auditors all necessary information and assistance,
28 and providing [accurate] royalty reports), compensatory damages, consequential
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1 damages, attorneys fees, and expenses, costs and disbursements, including

2 prejudgment interest, as well as such other and further relief as the Court deems just
3 and proper.
4 15. Foxconn denies that Qualcomm is entitled to any relief on its Complaint,
5 and hereby incorporates all responses in its responsive pleadings to that Complaint as
6 if fully set forth herein.
7 16. However, in the event that Foxconn is held liable to Qualcomm, Foxconn
8 is entitled to full indemnity from Apple.
9 17. Apple and Hon Hai entered into an Addendum regarding Mobile
10 Technology License Fees for iPads and an Addendum regarding Mobile Technology
11 License Fees for iPhones (together, the Addenda) with effective dates of January 1,
12 2017.
13 18. Among other things, the Addenda provide that under certain situations,
14 Apple shall indemnify Foxconn.
15 19. On information and belief, because Apple has an indemnity obligation to
16 Foxconn relating to Qualcomms Complaint, Apple has an interest in the outcome of
17 the litigation between Qualcomm and Foxconn. On information and belief, Apple also
18 has an interest in the litigation between Qualcomm and Foxconn based on the
19 allegations against, and characterizations of, Apple in the Qualcomm Complaint.
20 20. On information and belief, Apple denies that it has improperly interfered
21 with any enforceable contract between Foxconn and Qualcomm.
22 21. On information and belief, Apple denies that Qualcomm is entitled to any
23 relief on its Complaint against Foxconn because, among other reasons, Qualcomm has
24 breached certain FRAND commitments, has violated antitrust and unfair competition
25 laws, and is attempting to circumvent patent exhaustion principles.
26 22. The Addenda provide that at Apples request, Foxconn must implead
27 Apple into the action.
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1 23. On information and belief, Apple has consented to be impleaded into the
2 current action because it has an indemnification obligation to Foxconn, and so that it
3 may assert various claims and defenses to Qualcomms Complaint to minimize or
4 eliminate its liability for such indemnification.
5 Count One Contractual Indemnity
6 24. Foxconn incorporates by reference each of the allegations in paragraphs 1
7 through 23 above.
8 25. Foxconn has not breached its obligations under the MGA, the MDSA, and
9 the Addenda.
10 26. Foxconn has complied and will continue to comply with the conditions set
11 forth in the MGA, the MDSA, and the Addenda.
12 27. Pursuant to the Addenda, Apple is obligated to indemnify Foxconn for
13 any damages and costs awarded to Qualcomm in the underlying breach of contract
14 case.
15 28. Pursuant to the Addenda, Foxconn is entitled to recover from Apple any
16 award of damages and costs against it in the underlying case.
17 JURY DEMAND
18 29. Foxconn demands a trial by jury on all issues so triable.
19 PRAYER FOR RELIEF
20 WHEREFORE, Foxconn prays for judgment against Apple as follows:
21 a. That, in the event judgment is entered against Foxconn in the underlying
22 action, Foxconn is entitled to total or partial indemnity from Apple
23 according to the terms of the Addenda;
24 b. For such other and/or further relief as this Court may deem just and
25 proper.
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Dated: July 17, 2017 Gibson, Dunn & Crutcher LLP
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4 By: /s/ Nicola T. Hanna_________
Nicola T. Hanna
5
6 THEODORE J. BOUTROUS, JR. (SBN 132099)
tboutrous@gibsondunn.com
7 DANIEL G. SWANSON (SBN 116556)
dswanson@gibsondunn.com
8 NICOLA T. HANNA (SBN 130694)
9 nhanna@gibsondunn.com
JASON C. LO (SBN 219030)
10 jlo@gibsondunn.com
11 JENNIFER J. RHO (SBN 254312)
jrho@gibsondunn.com
12 MELISSA PHAN (SBN 266880)
mphan@gibsondunn.com
14 333 South Grand Avenue
Los Angeles, CA 90071
15 Tel: (213) 229-7000
Fax: (213) 229-7520
16
17 CYNTHIA E. RICHMAN (DC Bar No. 492089;
pro hac vice pending)
18 crichman@gibsondunn.com
1050 Connecticut Avenue, N.W.
20 Washington, DC 20036
Tel: (202) 955-8500
21 Fax: (202) 467-0539
22
23 Attorneys for Defendants and Third-Party
Plaintiffs Hon Hai Precision Industry Co., Ltd.
24 and FIH Mobile Ltd.
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1 CERTIFICATE OF SERVICE
2 The undersigned hereby certifies that a true and correct copy of the above and
3 foregoing document has been served on July 17, 2017 to all counsel of record who are
4 deemed to have consented to electronic service via the Courts CM/ECF system per
5 Civil Local Rule 5.4. Any other counsel of record will be served by electronic mail,
6 facsimile and/or overnight delivery.
7 Dated: July 17, 2017
8 /s/ Nicola T. Hanna
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Gibson, Dunn &
Crutcher LLP THIRD-PARTY COMPLAINT OF DEFENDANTS FIH MOBILE LTD. AND HON HAI PRECISION INDUSTRY CO., LTD.

17-07-17 Foxconn Impleading Apple in Qualcomm Case

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Case 3:17-cv-01010-GPC-MDD Document 66 Filed 07/17/17 PageID.

1 THEODORE J. BOUTROUS, JR. (SBN 132099)

Gibson, Dunn &

Gibson, Dunn &

Gibson, Dunn &

Gibson, Dunn &

Gibson, Dunn &

Gibson, Dunn &

1 damages, attorneys fees, and expenses, costs and disbursements, including

Gibson, Dunn &

Gibson, Dunn &

Gibson, Dunn &

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